URA clamps down on reissue of options to purchase for private homes; new curbs take immediate effect
SINGAPORE - Developers are now restricted from re-issuing options to purchase (OTPs) to the same buyer of the same unit within 12 months after the expiry of the earlier OTP, the Urban Redevelopment Authority (URA) said in a circular issued on Monday morning (Sept 28). They are also restricted from providing upfront agreements to buyers to re-issue OTPs, URA added. Both changes take effect immediately. This latest move by the URA is aimed at curbing a property market practice believed to be inflating private home sales figures, while encouraging financial prudence in home buying amid a weak economy and uncertain employment climate. The re-issuing of OTPs refers to an arrangement some private home buyers make with a developer, via a property agent, to continually re-issue OTPs upon expiry - without any forfeiture of the booking fee. In the past, this can be done for up to a year - or even as long as up to 18 months - from the date of the first OTP. The idea is to give the buyer time, for instance, to sell his existing home. "The need for greater financial discipline in making property purchase decisions is especially pertinent given the current economic situation, where workers are facing uncertainties in the labour market. Purchasers should only commit to a property purchase when they are ready to exercise the OTP within the validity period, " Ms Ling Hui Lin, controller of housing, URA, said in Monday's circular. "Therefore, the Controller of Housing will impose new conditions in the sale licences issued to developers with effect from today, " she said. Under the terms of a standard OTP, the option will expire three weeks after the sale and purchase agreement and copies of the title deeds are delivered to the intending purchaser. The intending purchaser will have to exercise the OTP before it expires by signing the sales and purchase agreement and returning it to the developer. If the purchaser fails to exercise the OTP,25 per cent of the booking fee may be forfeited to the developer. As the booking fee is typically 5 per cent of the sales price, the forfeited amount works out to 1.25 per cent of the total home price. The three-week validity period for the OTP is put in place to encourage purchasers to exercise financial prudence and commit to purchasing a property only when they have the financial means to do so. Purchasers will be exposed to the risk of forfeiting 25 per cent of their booking fees if they commit to new property purchases without securing the necessary finances upfront. "However, we have observed that there have been instances where the OTP is re-issued multiple times to the same purchaser(s) for the same unit, which lengthens the option period significantly, " URA's Ms Ling noted. While the current validity period in the standard OTP is generally sufficient for most purchasers to exercise the OTP, the Controller recognises that there may be some buyers who require more time to finalise the necessary arrangements before exercising the OTP. For example, purchasers may require more time to complete the sale of their existing property before exercising the OTP, Ms Ling said. Upon application by such purchasers or the developers, the Controller is prepared to extend the validity period of the OTP up to 12 weeks from the OTP date, provided that both parties (i.e. the buyer and the developer) are agreeable. Buyers or developers who wish to apply for an extension of the OTP validity period may submit their application to URA, with a copy and expiry date of the OTP; and reasons for requiring more time to exercise the OTP. Ms Tricia Song, head of research, Colliers international, believes URA's move will lead to more accurate home sales numbers. "We have observed that the monthly developer sales typically have 100-130 units 'returned' every month, probably due to the indefinite re-issuance of OTPs, she told The Straits Times. "In July,1,080 private homes excluding ECs were reported to be sold by developers. In August, if we compare the sales tally of each project versus July's, there is a discrepancy of 127 units that appeared to have been returned during the month. "There are of course real cases of need such as purchasers may require more time to complete the sale of their existing property before exercising the OTP. For these cases, URA now allows extension of validity of OTP by up to 12 weeks, subject to application and mutual agreement of developer and buyer, " Ms Song noted. Private developers have nothing to lose if only genuine buyers come forward, and get to pocket the 25 per cent of the booking fees if buyers give up their OTPs, she added. Mr Karamjit Singh, chief executive of Showsuite Consultancy, said URA's new directive will "remove a segment of purchasers who don't have the capacity to make the second payment (amounting to 15 per cent of the purchase price) within 12 weeks of the purchase and to pay for stamp duties." URA also said the new restrictions do not apply retrospectively to OTPs issued before Monday where developers have an existing reissue agreement with buyers. "This comes as a welcome relief to both parties, " said Mr Karamjit. He believes the new rules are not likely to be a major dampener to the market for new private homes, especially in the affordable mass-market segment. Mr Karamjit pointed to last weekend's launch of Penrose condominium by Hong Leong Holdings. Of its 566 units,341 were sold as of Sunday, representing 60 per cent of the development. "Hong Leong practised a strict 'no-reissue' policy. This means all the buyers would be required to exercise their options within 3 weeks of being served the sale and purchase agreements, " he said.